IMPACT: International Journal of Research in

Business Management (IMPACT: IJRBM)

ISSN (P): 2347-4572; ISSN (E): 2321-886X
Vol. 5, Issue 11, Nov 2017, 21-34
Impact Journals

PERFORMANCE EVALUATION SYSTEM KEY TO EMPLOYEE DEVELOPMENT

NEETU RANDHAWA
Assistant Professor, Indira School of Business Studies, Pune, India

ABSTRACT

Managing Human Resources in todays dynamic environment is becoming more and more complex as well as
important. People are now being recognized as a valuable resource in an organization. Performance Appraisal has
increasingly become part of a more strategic approach to integrating HR activities and business policies and may now be
seen as a generic term covering a variety of activities through which organizations seek to assess employees and develop
their competence, enhance performance and distribute rewards (Fletcher, 2001). Thus, both practice and research have
moved away from a narrow focus on psychometric and evaluation issues to developmental performance appraisal, which
may be defined as any effort concerned with enriching attitudes, experiences and skills that improves the effectiveness of
employees (Boswell and Boudreau, 2002).

Performance Appraisal is a very important tool that is used to measure frameworks set by organizations to its
employees. Individual contribution and performance is tracked against organizational goals and individual opportunities
and strength is assessed for future improvements. This study examined the status of The Performance Evaluation System
and its implication for individual and organizational growth. Only when individuals are continuously appraised and
evaluated can Organizational performance and its resultant efficiency and effectiveness be achieved. More now than ever
inability of organizations to implement an effective performance appraisal strategy has hindered them from achieving
competitive advantage.

Objectivity and fairness are hindered as many a times appraisal processes are not systematic and regular and are
often affected by personal influences occasioned by organizations pre occupation. This hinders the overall performance of
individuals, hence a 360 degrees appraisal system should be put in place whereby everybody is involved in the appraisal
process and the average should be considered. There should also be counseling sessions post appraisals wherein superiors
could share feedback with subordinates and their strengths and weaknesses could be discussed and an agenda could be set
for better future performance.

Organizations should start giving more importance to evaluation of their employees and accept that training needs
can only be identified from performance appraisal outcomes. Organizations should revisit and redesign its appraisal system
to align it with its Vision and Mission so that there is attainment of Organizational goals.

KEYWORDS: Organizational Performance, Performance Appraisal, Organizational growth, Employee Efficiency,

Training, Development

INTRODUCTION

Quality and Characteristics of employees determine the success of an organization. Since employees are the heart
of a company they become a significant factor in an organization. Goals and Objectives of an Organization cannot be

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 22 Neetu Randhawa

achieved without employees. However it is also a fact that an employee needs something to induce him in order to be
motivated to work in an organization. This was indicative of the more strategic approach to HRM policies, which sought to
connect the aims of the organization to the performance of the individual. The performance appraisal process becomes a
part of the performance management system and communicates the organizations aim, goals and objectives.

The most significant and indispensable tool of an organization is Performance Appraisal. It is highly useful in
making decisions in regards to promotions and merit increase. According to employees, Performance Appraisal System is
used to describe their level of performance to determine their level of performance, to determine their required output from
them and to provide suggestions which would in turn eventually improve their performance. From an organizations point
of view Principle of Accountability is the main reason for having a system of Performance Appraisal.

Performance Appraisal was initially started as a method for the justification of salary. It is important that every
organization design a performance appraisal system as a method of evaluation of employees on a regular basis. To put it in
simple terms appraisal may be understood as the assessment of an individuals performance in a systematic way, the
performance being measured against factors such as job knowledge, quality and quantity of output, initiative, leadership
abilities, judgment and the like. Potentials of employees future performance must also be assessed along with their past
performance.

A formal definition of Performance Appraisal is It is a systematic evaluation of the individual with respect to his
or her performance on the job and his or her potential for development. It is a structured formal interaction between a
supervisor and his subordinate that is usually conducted in the form of an interview in which the performance of the
subordinate is discussed, weaknesses and strengths identified. Also identified are opportunities for improvement and skills
development. It may also provide a basis for many other personnel actions such as:

Performance Pay

Training and Career Development

Promotion and Placement

Recognition and Rewards

Disciplinary actions

Identifying selection criteria

Its Success Depends mainly on the

System and Measures criteria

Culture and

Perceived Attitudes and needs of participants i.e. their degree of engagement with their jobs.

There are Many Reasons as to Why Performance Appraisals are Conducted

To promote efficiency and effectiveness in an organization

To enhance individual employee performance and their satisfaction

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 Performance Evaluation System Key to Employee Development 23

Administrative processing would be simpler

To ensure retainment of employee behaviors and attitudes by management

To review performance of an employee over a given period of time

To judge the gap between the desired performance and the actual performance

To help management keep control of the organization

To help strengthen relation and communication between superiors-subordinates and

management employees.

To be able to diagnose strengths and weaknesses of individuals so that training and development needs could
be identified and also to provide feedback to employees regarding their previous performance.

Research Objective

To study the practical application of Performance Appraisal

To study transformation of Performance Appraisal from traditional to modern

To study the effectiveness of Performance Appraisal System in different Organizations.

To study the critical challenges involved in the Performance Appraisal System.

To study the influence of Performance Appraisal on Employee Performance

Review of Literature

Employee performance appraisal is an effective tool or vehicle for assessment of employee performance and
implementation of strategic initiatives for the improvement of employee performance (Lawler and McDermott, 2003).
However, a considerable literature stream also suggests that there exist dissatisfaction in employees regarding performance
appraisal system (Mercer, 2002; Roberson and Stewart, 2006; Moullakis, 2005). For instance, Morgan (2006) noticed that
performance appraisal in many organizations has not met expectations of employees. In the same vein, prior findings by
Smither and London (2009) have elucidated that, 80-90% managers reflect that, performance appraisal has not been
effective in improving employee and organizations performance.

Performance appraisal has been regarded as the most critical human resource function within organizations by
which assessors or supervisors analyze and assess performance of their subordinates (Keeping and Levy, 2000).
the outcomes of performance appraisal assists mangers to select specific pay rates, promotional decisions, development and
training needs and motivational factors for employees (Zapata-Phelan et al., 2009). In this regard, performance appraisal
system has been widely researched within organizational psychology to assess employee performance. However, despite of
resources applied and attention made to this particular topic, prior researchers have found continuing dissatisfaction among
employers and employees about outcomes of performance appraisal systems in terms of unfair, inaccurate and political
outcomes (Rao, 2004; DeNisi and Pritchard, 2006). Therefore, it is important to study the factors affecting outcomes of
performance appraisal system.

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 24 Neetu Randhawa

Literature has identified several indicators that affect the outcomes of performance appraisal system. Appraisal
source is one critical factor. This factor suggests that employee performance can be evaluated through multiple sources
such as supervisors, managers, self, peers and even customers (Wood and Marshall, 2008). Purpose for which performance
has been appraised or evaluated is another important characteristic of performance (Thurston, 2001), and typically,
performance appraisal systems are utilized for multiple purposes ranging from developmental and administrative purposes.
Performance appraisal outcomes may also be affected by feedback richness. It elaborates the specific appraisal
environment by which frequent, specific and timely feedback is provided by employees to employers regarding job
(Kinicki et al., 2004).

Another aspect to evaluate the satisfaction and motivation in employees in relation to Performance Appraisal is
its perceived accuracy. (Wood and Marshall, 2008; and Selvarajan and Cloninger, 2009). In this regard, prior studies
suggest that if employee perceive that appraisal outcomes are accurate, they are more likely to recognize these results and
act on them (Roberson and Stewart, 2006).

Performance Appraisal outcome effectiveness is also measured by employees perception of fairness

(Youngcourt et al., 2007). Hence, there is a suggestion by previous studies which suggests that justice or fairness of
performance appraisal can be evaluated into 3 dimensions Procedural, Distributive and Interactional Fairness
(Colquitt et al. 2001).

Distributive Fairness represents the extent to which outcomes of appraisal is distributed fairly
(Smither and London2009).In the appraisal context, the distributive context relates with the ratings of performance
appraisal gained by employees. On the other hand, procedural fairness aims at the extent to which procedures deployed by
organization for appraisal are fair in deriving outcomes of appraisal (Zapata-Phelan et al., 2009). Contrary to this,
the concept of interactional fairness represents the extent to which employees receive treatment of peers and supervisors
during the process of appraising performance (Roberson and Stewart 2006).

Levy and Williams (2004) suggest that it is important to analyze employee satisfaction as it determines reactions
of employees towards appraisal. Contrary to this, motivation represents the degree to which employees are willing to make
improvements in their performance (Roberson and Stewart, 2006). It is suggested by some authors that perceptions about
fairness hold a critical importance within organizations because it avoids negative outcomes such as disruptive behaviors
and employee turnover and also enhance positive outcomes of organizations such positive citizenship, commitment and
satisfaction with the job (Selvarajan and Cloninger, 2009).

Thurston (2001) has addressed the specific aspects related with performance appraisal and also reveal that
effectiveness and success of appraisal system depends on reactions and feedback of employees. This suggests that is it
important to get employee feedback for assessing effectiveness of the appraisal system. This feedback can be positive or
negative regarding outcomes of appraisal system. Prior studies have revealed that positive feedback is more likely to be
accepted, whereas employees often hesitate to accept negative outcomes of appraisal system (Rao 2004). On the other
hand, Roberson and Stewart (2006) suggest that if negative feedback is delivered in an effective and persuasive manner,
employees will take it seriously and will focus on eliminating the negative aspects in their performance.

Previous literature has suggested that for attaining different objectives performance appraisal is an effective
system. In this regard, Selvarajan and Cloninger (2009) have revealed that, effective performance appraisal system will not

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 Performance Evaluation System Key to Employee Development 25

only improve performance of employees but also motivate them. Hence weak and strong performers can be identified. In
the same line of thought, prior studies have identified five major outcomes of effective performance appraisal (Rao 2004).
These are: 1) using results of performance appraisal to improve employee performance, 2) enhancing motivation, 3)
reducing employee turnover, 4) associating rewards and employee performance and 5) establishing equity among
employees (Rao 2004; Selvarajan and Cloninger, 2009).

Nurse (2005) has also discussed the impact of appraisal on employees and organizations. He specifically
suggested that, results of appraisal provide information to managers to take further steps about promotions and
development of employees. On the contrary, Rao (2004) suggests that weak areas of performance are identified through
effective performance appraisal system. In this way, managers can take decisions regarding training of employees to
improve those weak areas. Moving further, Teratanavat, Raitano and Kleiner (2006) suggest that, effective performance
appraisal and feedback results in reducing stress level of employees. In this way, performance appraisal system interlinks
current, past and future performance of employees.

Theoretical Framework

Figure 1

Another aspect to evaluate the satisfaction and motivation in employees in relation to Performance Appraisal is
the perceived accuracy of Performance Appraisal.

Steps for Developing Systematic Performance Appraisals

Identify Key Performance Criteria: This should be based on a comprehensive Job Description and undertaken
in consultation with employees.

Develop appraisal measures: It is important to obtain accurate and valid performance appraisals; hence they
should be tailored to the specific job or job family. Factors in the work environment which help or hinder
performance are also recommended. This ensures that employees expectations are realistic and this is also
likely to increase the perceived fairness and acceptability of Performance Appraisal.

Collection of performance Information from different sources: Traditionally it was the sole responsibility of
managers/supervisors to assess performance. But overtime it has been seen that other members such as
clients, co-workers, subordinates can be a valuable source of information as they are more likely to have
exposure to different aspects of employees performance. If information is collected from multiple sources, it
can increase the accuracy of performance evaluation ie: reduce bias and increase employees perception of
fairness.

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 26 Neetu Randhawa

Conduct an appraisal interview : 2 main purposes of the appraisal interview are to

Reflect on past performance; hence identify major achievement, areas for further improvement and
barriers/facilitators to effective performance.

Identify strategies and goals for future work practice.

The appraisal interview should be a constructive, two way exchanges between the supervisor and employee,
with preparation for the interview done by both parties beforehand.

Evaluate the appraisal process: It is very important for the Performance appraisal process to undergo regular
review and improvement ex: Focus groups or surveys could be conducted to gauge employees perceptions of
the appraisal process. A good successful Performance Appraisal process should demonstrate a change in both
the rating of employee performance and aspects of the work environment that impact upon work
performance.

Best Practices in Performance Appraisal: It Involves

Integrating Performance Appraisal into a formal goal setting system

Basting appraisals on accurate and current job descriptions

Offering adequate support and assistance to employees to improve their performance (eg: professional
development opportunities)

Ensuring that appraisers have adequate knowledge and direct experience of the employee performance.

Conduct appraisals on a regular basis.

Traditional vs. Modern Performance Appraisal

Performance Appraisal history is quite brief. Its roots in the early 20th century can be traced to Taylors Pioneering
Time and Motion Studies. During the First World War the US army adopted the appraisal concept in the form of merit
rating. For Military Personnel it was man-to-man rating system for evolution. From the army this concept entered the
business field and was restricted to hourly paid workers. During the 1920s relational wage structures for hourly paid
workers was adopted in industrial units and each worker was being used to be rated in comparison to the other for
determining wage rates. This system was called Merit Rating. If it was found that the employees performance was better
than the supervisor expected, a pay rise was in order.

There was little consideration given to developmental possibilities of appraisal. Sometimes this system succeeded
but most of the time it failed. A lot of early motivational researchers were aware that different people with somewhat equal
working abilities could be paid the same amount of money and yet have different levels of motivation and performance.
Empirical Studies confirmed these observations. Pay rates were important, yes; but they were not the only element that had
an impact on employee performance. It was found that issues, such as moral and self-esteem, could also have great
influence.

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 Performance Evaluation System Key to Employee Development 27

Hence, the traditional emphasis on reward outcomes was progressively rejected. In the 1950s US recognized the
potential usefulness of appraisal as a tool for motivation and development. The general model of Performance Appraisal, as
it is known today, began from that time.

Conducting an Effective Performance Appraisal

The following five step approach should be followed for conducting a systematic Performance Appraisal

Identify Key Performance criteria

Develop appraisal measures

Collect performance information from different sources

Conduct an appraisal interview

Evaluate the appraisal

Step 1: Identify Key Performance Criteria

What to assess is perhaps the most challenging aspect of setting up Performance Appraisal. Four key dimensions
of performance need to be considered in a performance appraisal.

Key Dimensions to Performance

Table 1
Competencies Knowledge, skills, and abilities relevant to performance
Behaviors Specific actions conducted and / or tasks performed
Output, quantifiable results, measurable outcomes and
Results/outcomes
achievements, objectives attained
Organizational citizenship behaviors Actions that are over and above usual job responsibilities

In Order to ensure that the Performance Criteria is Relevant to Work Practice and is Acceptable to Appraisers and
Employees

The Performance criteria should be based on an up-to-date Job Description: Relevance of an appraisal will be
clear only with clear and explicit links between Performance Appraisal and Job description. Before
conducting a Performance Appraisal it should be checked that the Job Description is detailed and is not out-
of-date, and an accurate Job Description be developed.

The criteria should be developed in consultation with appraisers and employees: If Job Descriptions are
linked with Performance Appraisals; it can help keep focus of appraisal process on key competencies,
behaviors and outcomes associated with a particular role or position. It would also be useful to consult with
employee to :

Ensure that the Key Aspects of a Role/Position are represented in the Job Description. For example

Conduct assessments

Plan interventions

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 28 Neetu Randhawa

Manage cases

Liaise with and refer to other providers

Keep up-to-date service records and case notes

Write reports

Develop a clear understanding of the relative importance of various competencies,

Behaviors and Outcomes

Identify how these key competencies, behaviors and outcomes can be fairly and accurately assessed.

In order for the appraisal process to be a success and be accepted employees should be made to participate in
the development of appraisal criteria and measures, and in the process of conducting appraisals.

Employee Participation Strategies

Engagement in formal meetings or informal discussions with supervisors to seek input and / or feedback on
appraisal measures and criteria

Representation on groups/ committees involved in the design and implementation of performance appraisals

Inclusion of self-appraisals in the appraisal process

Providing opportunities for employees to contribute to the performance appraisal of coworkers and managers/
supervisors.

It is also important that employees perceive the appraisal system to be equitable and fair.

Step 2: Develop Appraisal Measures

After clear performance criteria have been identified, the next step would be to decide how to access performance
of employees. It is important to approach it in a structured and systematic way. There are various problems that can arise if
an unstructured blank sheet approach is used such as:

Reduced accuracy

Important skills, knowledge and abilities critical to job performance may be overlooked.

There could be reduction in consistency between appraisals.

Perceptions of subjectivity in evaluations, which may in turn, reduce employees satisfaction with, and
acceptance of appraisals.

Appraisal Measure Design has 3 Important Considerations

Generic versus Individually tailored measures

Objective versus Subjective assessments

Assessing the impact of the work environment on performance.

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 Performance Evaluation System Key to Employee Development 29

Step 3: Collect Performance Information from Different Sources

Once appraisal measures are identified and developed, the next step would be to collect accurate information on
employee performance. It could begin with noting observations of employees before conducting appraisals. This is most
likely to give an accurate picture of performance of employees. Ideally performance should be observed over time and
notes should be taken down in a diary. This would help in gathering accurate information on employees performance. But
there is also a downfall to this ie: some employees operate with a high degree of autonomy. Many Managers/Supervisors
due to their own heavy workload observe employee performance over time and also, perceptions of an ongoing monitoring
foster a sense of surveillance which can damage staff morale.

A better report would be to keep critical incident reports in which satisfactory and unsatisfactory performances be
noted. Employees could also be encouraged to keep a track of their performance records.

Traditionally it is the Manager/Supervisor who assesses performance; however other members of the organization
could be very helpful in providing information as they are more likely to have exposure to different aspects of an
employees performance. This is known as 360degree feedback. This also helps reduce biasness; employee4s will perceive
the process to be fair.

Step 4: Conduct an Appraisal Interview

The next step would be to conduct the appraisal interview. 2 main purposes are to:

Identify major achievement by reflecting on past performance.

Identify strategies and goals for further work practice

Strategies to ensure the appraisal interview are positive, constructive and beneficial for employee effectiveness.

Before the Interview

While discussing their performance employees should be made comfortable by engaging in regular, informal
communication on work, progress, obstacles and issues, possible solutions and assistance.

Before the interview employees should be encouraged to review their own performance and prepare.

Draft a plan and a list of issues that needs to be addressed with employees (ie: strengths, weakness of
performance, performance improvement strategies)

Employee participation should be encouraged, they could be asked to share their views about their
performance.

To put employees at ease always begin with positive feedback.

Always make it a two way discussion

Goals should be set mutually ensuring employees participate in determining specific, challenging but
attainable goals for future work performance.

There should be a clear agreement on performance objectives and evaluation criteria for the following year.

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 30 Neetu Randhawa

Always keep a written record on the appraisal interview, where both parties have signed off.

After the Interview:

Employees should be coached regularly, they should be given frequent feedback in order to help them
improve performance

There should be regular assessment of progress towards goals, this helps keep behavior in track and enhances
commitment to effective performance.

Rewards should be related to performance-by linking appraisal results to employment decisions such as
promotions and salaries, employees are more likely to prepare for, participate in, and be satisfied with the
appraisal system.

Step 5: Evaluate the Appraisal Process

In an organization, the performance appraisal process should undergo regular review and improvement. It would
also be helpful to monitor the types of issues raised by supervisors and employees overtime.

For a Performance Appraisal process to be a success it should be able to demonstrate a change in both the rating
of employee performance and the work environment.

RESEARCH METHODOLOGY

This is a non-empirical form of research, which includes analysis performed form various published articles,
websites, researches, professional publications and journals. These are all secondary data based references and it is great to
refer to these as every research shows a point to believe that their work is genuine and fruitful by its own paperwork.

Analysis and Suggestions

Performance Appraisal should be communicated down the line to all employees and its importance should be
recognized and it should not be perceived as just another regular activity.

On the basis of Performance Appraisal there should be a review of Job analysis, Job Design and Work
Environment.

It should bring more clarity to the goal and vision of the Organization

Employees should feel more empowered

For the appraiser and appraise to take interest in the appraisal process new methods should be adopted.

Regular feedback regarding appraisals should be given to employees; this would help them improve their
weak areas.

Annual Appraisal System should be linked to financial and non -financial incentives, this would help
employees perform better.

There should be new mechanisms to educe the time and factor involved in the procedure of the appraisal.
Introducing online appraisals could help.

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 Performance Evaluation System Key to Employee Development 31

Frequency of training programs should be increased.

Awareness sessions for employees/appraises should be made more interactive and the views and opinion of
the appraises regarding appraisal should be given due consideration.

Specialists should be sought for forming a proper appraisal system. Constant monitoring could be done
through discussions, suggestions and interactions.

Modern appraisal techniques such as 360Degree appraisal could be used.

There should be a transparency in the appraisal system.

All employees of the Organization ie, White Collar and Blue Collar jobs should be covered.

Recognizing good performers, giving incentives helps in getting more commitment from employees.

Performance Appraisal should be effectively linked to the Performance Management System of the
Organization.

CONCLUSIONS

During the years as an increase of concentration on administrative management, HRM plays an important role in
managing an Organization, such as the effects of HRM on innovation new way of working principle for working
relation.

AS a field of study, Performance Management System is a popular topic in HRM over time. It is important for
any Organization to plan, manage and reward performance4. By doing this, the productivity of the company would be
developed and profit would be increased.

Employees are the resources and assets of an Organization. Hence, it is important that an Organization figure out
strategies for identifying, encouraging, measuring, evaluating, improving and rewarding employees. Organizational
Performance could influence employee performance. Therefore this paper aimed at understanding how Performance
Management System influences employee performance.

Organizations cannot grow if individuals that work in the organization are not deliberately encouraged and
supported through genuine Performance Appraisal. As explained by Fajana (1997), performance discrepancy can be
managed through concerted efforts at Training & Development, Career & Succession Management. It is also very
important that, organizations have periodic reviews or audits of all personnel policies, programs and procedures,
compensation, recruitment & staffing, job analysis, job evaluation, grievance process and communication channel etc. It
needs to be remembered that Performance Appraisal is a means not an end. And as means Human Resource Development
would be better off if Performance Appraisal is genuinely conducted.

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